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2023 (6) TMI 999 - AT - Service TaxClassification of services - Renting of Immovable Property Service - revenue sharing agreement - agreement entered by the appellant with M/s.IHCL and grant of licence to M/s.IHCL to run conduct and operate the three hotels together with all the related facilities and business appertaining thereto from the date of execution of the agreement - demand with interest and penalty - extended period of limitation - HELD THAT - On perusal of the licence fee it is seen that it is fixed on the basis of the annual sales from the operations of the hotels. The term Sales is explained in clause 4.3 of the agreement. These clauses show that amount received by the appellant is in the nature of sharing of profits and cannot be considered as rent received for renting / licensing of the immovable property. On perusal of various clauses of the agreement it cannot be said that the there is a predominant activity of renting of immovable property. The hotel along with its premises facilities the goodwill etc. has been handed over to M/s.IHCL - The intention is therefore not to merely permit to use the space. Further the alleged consideration is based on the annual sales. The amount paid as security deposit is only to meet the risks at the initial stages. The decision in the case of Grand Royale Enterprises 2022 (9) TMI 273 - SC ORDER would be squarely applicable as the agreement and facts are identical and the demand for the period upto 31.03.2011 cannot sustain. Whether the consideration received is for providing the taxable service of renting of immovable property? - HELD THAT - On examination of the agreement it is in the nature of joint venture where both parties have come together to carry out the business on a revenue sharing model. Both parties are desirous of earning profit. Generally while in the case of providing service one party is desirous of receiving service and the other party is desirous of receiving the consideration. It cannot be said that by providing the hotel premises for conduct of hotel business and receiving the share of profit the appellant is providing renting of immovable property service. This is because when the entire hotel along with its facilities are licensed to M/s.IHCL with an intention to receive share of the profit of the business the transaction is more in the nature of contributing to the capital of the joint venture. The Tribunal in the case of Inox Leisure Ltd. Vs CST Hyderabad 2021 (10) TMI 893 - CESTAT HYDERABAD had occasion to analyse a revenue sharing agreement. The facts in the case are such that the appellant therein was engaged in the business of exhibiting cinematographic films across India in theatres owned by the appellant as well as taken on rent. The appellant acquired rights for exhibiting films from film distributors by entering into special license agreements for each film. The consideration for such license is paid as per the agreed percentage of box office collection and such percentage varies from distributor to distributor movie to movie week to week after the release date - The Tribunal held that a revenue sharing agreement by itself does not necessarily imply provision of service unless service provider and service recipient relationship is established. As per para 4 of the said order of the Tribunal the demands were raised for the period 09.05.2009 to 31.03.2012 and 01.04.2012 to 30.06.2012. The Tribunal set aside the demands for both the periods observing that the agreement did not bring out any service provider and service recipient relationship. Time Limitation - HELD THAT - The issue is interpretational in nature and there were various litigations pending before the various forums as to the issue whether such agreements in which there is a sharing of profit can be considered as agreement for renting of immovable property. So also Explanation-I to Section 65 (105) (zzzz) excludes hotels from the ambit of Renting of Immovable Property Service - demand raised invoking the extended period cannot sustain and requires to be set aside. Appellant succeeds on the ground of limitation also. The demand cannot sustain both on merits as well as on limitation and requires to be set aside - Appeal allowed.
Issues Involved:
1. Whether the appellant is required to pay service tax under "Renting of Immovable Property Service" in terms of the agreement with M/s. IHCL. 2. Whether the demand, interest, and penalties are sustainable. 3. Whether the show cause notice issued invoking the extended period is sustainable. Summary: Issue 1: Service Tax Liability under "Renting of Immovable Property Service" The appellant, M/s. Spencer International Hotels Ltd., contended that the agreement with M/s. IHCL was a business conducting agreement, not merely for renting immovable property. The license fee was based on a percentage of annual sales, indicating a profit-sharing arrangement rather than fixed rent. The Tribunal found that the agreement was not for renting immovable property but for running the entire hotel business, including its premises, facilities, and goodwill. The consideration was based on annual sales, not fixed rent, aligning with the decision in Grand Royale Enterprises Vs CST Chennai, where similar facts led to the conclusion that such agreements are not liable to service tax under "Renting of Immovable Property Service." Issue 2: Sustainability of Demand, Interest, and Penalties The Tribunal held that the demand, interest, and penalties for the period 01.06.2007 to 31.03.2011 and 01.04.2012 to 30.06.2012 could not sustain. The agreement's nature indicated a joint venture for profit-sharing, not a service provider-recipient relationship. The Tribunal relied on previous judgments, including Grand Royale Enterprises, which established that revenue-sharing agreements do not constitute renting of immovable property. Issue 3: Validity of Extended Period for Show Cause Notice The Tribunal found that the issue was interpretational and involved various litigations. The facts were known to the department, and there was no positive act of suppression by the appellant. As such, invoking the extended period of limitation was not justified. The demand raised under the extended period was set aside on these grounds. Conclusion: The Tribunal set aside the demands for both periods on merits and limitation, allowing the appeals with consequential relief. The judgment emphasized that agreements involving profit-sharing and comprehensive business operation do not fall under "Renting of Immovable Property Service."
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